If you or your small business are legally responsible for compensating another person for bodily injuries or damages to their property they suffer, it’s liability insurance that covers those costs. And depending on the incident or type of loss a third party incurs, those expenses can run into thousands of dollars, potentially threatening the viability of your business.

Liability insurance is a general term that describes specific protections to protect your business or profession from financial losses if facing a third-party lawsuit or claim for damages.

According to the Insurance Bureau of Canada, the commercial general liability (CGL) insurance market was worth $13.8 billion in 2021, with an estimated $5.7 billion being paid out in claims to policyholders.

Understanding what liability business insurance is.

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What Does Liability Insurance Cover?

A business liability insurance policy can help pay your legal and other expenses associated with a third-party claim or lawsuit, such as one of your customers who alleges your services caused them financial or reputational harm, or a visitor to your store who trips, falls and requires medical attention because they’re injured.

As with any insurance, a liability insurance policy usually has exclusions, restrictions, or coverage limits. For instance, liability insurance is not designed to pay for damage to your business’s property caused by a flood (you need commercial property insurance to cover your place of business). Instead, liability insurance protects a business owner’s costs if they must pay a third party for damage or loss.

What Different Types of Liability Insurance Are There?

As liability insurance is a blanket term describing types of coverages to protect a policyholder (a.k.a. the insured) or business owner from risks imposed by damage and loss claims and third-party lawsuits, there are different types of liability insurance for self-employed professionals or contractors and business owners, including:

Commercial general liability (CGL) insurance

CGL is the most common type of business liability insurance. Also referred to as general liability insurance, it is designed to cover expenses related to third-party bodily injury and property damage claims or lawsuits caused by one of your employees, usual business activities, or negligence. 

CGL also includes coverage for allegations or lawsuits related to defamation and false advertising, tenant’s legal liability to cover the cost to repair or replace property that you rent or occupy, and product liability insurance to shield you from claims or damages associated with any product you sell, distribute, or manufacture.

Directors and officers (D&O) liability insurance

If your company has a board of directors or officers overseeing it, D&O liability insurance is necessary to protect them.

Also called management liability insurance, it covers board members if they are personally named in a third-party claim or lawsuit for things such as breach of legal or fiduciary duty, misrepresentation, wrongful dismissals and employee discrimination claims, misleading statements to shareholders, and failure to adhere to regulatory rules and laws.

Errors and omissions (E&O) liability insurance

Whether you call it E&O insurance or professional liability insurance, this policy protects your services from lawsuits related to or allegations of negligence, mistakes, misconduct, and failure to deliver a service as promised. E&O also includes protection against the cost of one of our clients being sued for defamation, libel, or slander from your media-related services.

Employers’ liability insurance

Business owners know they’re responsible for keeping their employees safe from harm, but no workplace is completely accident-free. That’s why employers’ liability insurance exists: it covers the cost of claims for injuries, illnesses, or deaths your employees suffer that aren’t covered by your province’s workers’ compensation board. 

This type of insurance complements workers’ compensation coverage. A business owner can be held legally responsible for paying an injured employee’s lost wages, medical expenses, and additional compensation if they are successfully sued.

Cyber liability insurance

Cyber liability insurance protects your business from the financial impact of a data breach or cyber-attack, including stolen or compromised intellectual property and confidential information. It’s designed to provide financial support if your cybersecurity defences fail, if you’re fooled by a phishing attack that results in malware infiltrating your network, or if you’re the victim of a ransomware attack.

Special events liability insurance

Special events liability insurance is temporary, short-term coverage to protect you from third-party bodily injuries and third-party property damages that may happen when participating in or hosting and organizing an event or meeting at a public or rented venue. It offers an inexpensive way to protect your finances from expensive accidents or damages that affect others. For example, if your business hosts or participates in a wedding, trade show, or corporate and private parties in public spaces or rented venues, and an attendee is injured in a trip and fall accident, you may be liable for their medical expenses. Special events liability coverage is designed to cover those costs, as general liability insurance may not apply.

Umbrella liability insurance

Think of umbrella liability insurance as additional protection or security for third-party bodily injury or property damage expenses exceeding your insurance policy’s coverage limits.

For example, if you have a commercial auto insurance policy, and an employee is at fault for a car accident with another motorist who suffers severe injuries, once your commercial auto policy’s third-party liability coverage limit is reached, an umbrella liability policy kicks in to pay for additional expenses. 

Commercial auto insurance

A standard or basic commercial auto insurance policy features four types of coverage, including third-party liability insurance. It covers you if you are responsible or at fault for a car accident resulting in property damage, personal injuries, or death to another person.

Commercial fleet vehicle insurance

A standard or basic commercial fleet vehicle insurance policy includes the same four mandatory coverages as a commercial auto policy, including third-party liability insurance. 

How to Get Liability Business Insurance

The simplest and most affordable way to get the small business liability insurance you need is through Zensurance. We specialize in protecting self-employed professionals and small business owners in almost any industry across Canada.

Fill out an online application for a free quote in just a few clicks. Through our partner network of more than 50 Canadian insurance providers, our friendly brokers will find and customize the policy you need that suits your budget and addresses your risks.

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About the Author: Joe Sarraino

Joe Sarraino is a Team Lead, Contractors, at Zensurance.